Perhaps the most heated issue among market observers is whether the world will enter a recession in the near term. Among the indicators some market observers point to are an inverted yield curve, weaker railcar loadings, slower bank lending, and slower trade. The leads to the conclusion that a recession may happen, and then again, it may not. The question here is more basic than recession forecasting. The question is: if a recession does come about soon, which precious metal may be the best to hold - silver or gold?
The Price of Gold and Silver from 2000 to Today
Before looking at how the prices of silver and gold did during the past two recessions, the following figure is a look at the performance of the two precious metals from 2000 to today. In the chart, the left vertical axis corresponds to the price of gold (orange line). The right vertical axis is the price of silver. If takes a step back, one must be somewhat in awe at what the price of gold has done so far in the 21st century.
Gold’s price has increased from $282 per troy ounce on January 4, 2000 to a peak of $1,895 at closing on September 5, 2011. Since that September 5th peak, the price of gold is down somewhat, as of writing at $1,537 per troy ounce. If one happened to have held gold over this period, the gain was 600%. A very nice return by any measure.
The silver picture is not as amazing, although still good. On January 4, 2000, the price of silver was $5.30. As of writing, silver’s price is $18.37. The gain over this period for a holder of silver is then 246%. Decent, and a good diversifying asset, but fails to meet gold’s massive rise.
With the topic now introduced, this and the next section looks at the prices of silver and gold during the past two recessions.
Up first is the 2001 worldwide recession. The graphic that follows is the price of gold and the price of silver across the global recession. The global recession is shown by the gray bar.
Silver’s price started the recession in March 2001 at $4.51. Seven months later, silver was trading at $4.28 to end October. The loss was approximately 5%. For a recession that saw massive amounts of wealth disappear, the 5% drop was not too bad.
Gold’s price was more positive. In March 2001 gold was trading at $266.35. The precious metal ended the recession in October 2001 at $278.75. The gain over the period was about 5%. That is right, gold holders saw their asset increase in value over the recession, not decrease.
Next, a look at the 2008 recession.
The next graphic looks at the prices of gold and silver over the 2008 recession. On January 2, 2008, gold stood at $846.75 per troy ounce. By the end of 2008, the price of gold was $869.75, representing an increase of about 3%. As with the 2001 recession, the 2008 recession saw holders of gold gain wealth, not lose it. Stockholders were more than just jealous.
In contrast to the price of gold, the price of silver saw its value decline precipitously. On January 2, 2008 to year end 2008, silver dropped from $14.93 to $10.79. The drop was 28%. Holders of gold had something to hold over the heads of individuals that held silver during the recession.
In conclusion, should a recession happen (a very big if!) and if gold and silver prices performance as they did during the 2001 or 2008 recessions, then the asset to hold is gold. Gold won in 2001, with a return of 5% versus a loss of 5% for silver. Gold won again in 2008, with a 3% return compared to silver’s 28% drop. Silver may have a stronger longer-term outlook but think carefully about whether a recession is on the near-term horizon. It could make a large difference in one’s portfolio value